• Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 10/9/2013

Australia - Proposed revision of petroleum “exploration” expenditure 

October 9: Exploration expenditure—which is treated favorably for both Petroleum Resource Rent Tax (PRRT) and income tax purposes—has been an area of focus for the Australian Taxation Office (ATO).

Following a recent court decision, the ATO released a draft tax ruling (TR2013/D4) setting out a narrow view of what constitutes exploration expenditure for PRRT purposes—one that differs from historical interpretations adopted by taxpayers.

The ATO’s current position is that the ordinary meaning of “exploration” is limited to the discovery and identification of the existence, extent, and nature of petroleum—a position that is contrary to the views expressed in TR 98/23 and IT 2642 and notwithstanding that this may include an expenditure that is exploration for income tax purposes.

The view expressed in the draft ruling has implications for:

  • The net present value of petroleum projects
  • The time that projects become “tax paying”
  • Tax-effect accounting
  • Transferability of expenditure between projects
  • Transfer notices
  • Potentially the quantum of assessable petroleum receipts for liquefied natural gas (LNG) projects

If adopted, the position in the draft ruling could have commercial and contractual implications for many PRRT taxpayers.

Read an October 2013 report prepared by the KPMG member firm in Australia: Exploration – what the ATO thinks it means

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